Being a small business owner is tough. You wear every hat and need to know how to do every job. You are looked to for every question your staff has, and they expect a quick and accurate answer.
You have options to help you. One of the ways to take items off your plate is outsourcing administrative burdens to a third party. The next question then presents itself: should you choose an Administrative Services Organization (ASO) or a Professional Employer Organization (PEO)?
Understanding the differences between an ASO and a PEO can help you make this decision. Both provide HR outsourcing solutions, but only one can save your business money while improving your employee benefits.
A PEO is a company that provides you with HR services to help ease the burden on your internal HR team. To help with this process, a PEO becomes the employer of record for your employees. That means payroll is filed under the PEO's Federal Employer Identification Number (FEIN). This creates a co-employment relationship between your small business and the PEO.
Creating a means to an end, this relationship allows the PEO to handle your payroll, tax, and insurance filings. It also enables the PEO to assist in complex HR regulations to help keep your business compliant. But a co-employment relationship does not mean you lose any control. You keep sole and exclusive control over the day-to-day operations of your company and personnel decisions.
A PEO can handle:
Not all PEOs are created equal. There is a difference between certified and non-certified PEOs.
An ASO is an HR outsourcing company that provides your small business with HR services like expert HR advice and administrative support. Some of the services include:
An ASO may be able to give your company with much-needed administrative help. They may take over payroll processing to help ensure that your internal team has the time necessary to focus on growth objectives for your business. But an ASO cannot provide the same level of detailed service that a PEO can.
The most significant and most crucial difference between a PEO and an ASO is that PEOs offer your business access to their group medical benefits, workers' compensation, and retirement plans. This is made possible through a co-employment relationship which establishes a shared liability for your employees. Through this relationship, you can achieve goals you set out for your company, including growing your business through lower benefits costs.
Every client company of the PEO joins in this same relationship, creating a PEO that represents thousands of employees. That gives them leverage to negotiate better rates on benefits than you could get on your own. Your PEO passes these rates on to you and your employees, resulting in a better benefits package at prices you can afford.
This cost savings is a result of the co-employment relationship. Companies that work with a PEO see an average growth of 7-9% faster than companies that do not work with a PEO.
An ASO can provide a similar ROI for some companies, mostly larger companies, those with more than 300 employees. When your company's main need is administrative support, an ASO more directly addresses that need. But this route ignores the upgraded benefits that a PEO can give to your company and your employees.
An ASO might also be a better choice for companies that do not want a better workers' compensation plan or employee benefits offerings with a PEO. If your company cannot improve your current workers' compensation rates or other cost savings with a PEO, you may want to choose an ASO instead.
When a company only has specific needs or very contained HR needs, an ASO might provide a better offering than a PEO which provides much deeper and more detailed services. For example, if all your company needs is HR administration support and you do not need access to any group programs, workers' compensation coverage, or retirement benefits, then an ASO will more directly address your individual needs.
Choosing an ASO will also give you the ability to be more aggressive with pushing the boundaries of HR. Because co-employment creates shared liability, a PEO will strictly adhere to HR practices and compliance. If your company's philosophical view is to push harder, an ASO would serve your needs better.
A PEO will provide small and mid-sized companies with a higher ROI than an ASO can. Most of this stems directly from the co-employment relationship between your company and your PEO. Co-employment helps your company achieve the cost-saving goals you set forth.
Through this partnership, you gain access to better employee benefits and lower workers' compensation premiums—all of this in addition to administrative cost savings for your company.
Besides that, when your HR team can focus on building a culture where people thrive and grow, you can attract and retain top talent in your industry. Lower turnover means lower costs because you do not have to replace employees as frequently. When your employees are happy and engaged, they stick around, increasing your retention.
Ultimately, joining a PEO provides your company access to large group programs for medical benefits, workers' compensation, and retirement plans. Through your PEO, these programs offer lower costs to you and your employees while providing expanded choice.
When choosing a best-in-class PEO to partner with, you want to know that you will have a positive ROI and part of that comes from the services provided. While a PEO will require you to use their payroll service and join their workers' compensation plan, you want to make sure your PEO is flexible in all other areas.
For example, if you have existing health benefits that you and your employees prefer, you want to be able to keep those. A flexible PEO will work with you to keep the current benefits you like. Ultimately, you want to make sure you are only paying for the services you need and use. A best-in-class PEO will help you reach this goal.